Gerry Murphy
president, SunGard’s
Brokerage and
Clearance business
If you talk to anyone about the financial crisis for more than a few minutes, one expression is likely to crop up: “too big to fail.” There’s even an entry for it in Wikipedia, where it’s defined as “a phrase referring to the idea that in economic regulation, the largest and most interconnected businesses are so large that a government cannot allow them to fail because said failure would have a disastrous effect on the economy.”
Whether or not you agree with this philosophy, or you believe that such businesses should be left to manage on their own in the market, it’s an important debate to have. Indeed, it’s a discussion that regulators, politicians, industry experts and others are holding right now both in the U.S. and around the world.
These discussions often look at only one what-if scenario: what if these firms were about to go out of business? Would they take other organizations down with them? Would the effects significantly disrupt the markets throughout the country and around the world?
We also need to look at the situation before the business gets to that point. That leads to another important question that my colleague Tony Scianna and I have been thinking about: Can an organization become “too big to manage the risk”?
As I and many others have said before, one of the biggest lessons of the crisis has been around the importance of effective risk management. The complexity of these huge organizations does not only come into play if and when they teeter on the edge of survival. There’s a day-to-day need to monitor and control risk across the organization. The bigger the organization, the more challenging it can be, especially when firms are built from acquisitions and businesses remain siloed. Information may not be shared across business lines – and in some cases, not even within them. Legacy systems may not communicate with each other or provide the real-time information that you need. So how can you measure and understand your risk?
How would you answer that question? What lessons have you learned from the crisis?